VIETNAM Law and Practice Contributed by: Minh Duong, Phong Nguyen and Justin Gisz, Asia Counsel Vietnam Law Company Limited
9.3 Tax Mitigation Strategies To minimise their tax burden in Vietnam, foreign direct investors (FDIs) should pay close attention to several key aspects of the local tax system. Tax Incentives and Procedures Vietnam offers various tax incentives, such as prefer - ential rates, holidays and reductions. Understanding the eligibility criteria and application procedures for these benefits is crucial for maximising tax savings. Deductible Expenses Only expenses incurred in generating revenue and supported by proper documentation (valid invoices, contracts, bank statements, etc) are tax-deductible. Be aware of non-deductible expenses like excessive employee benefits or foreign exchange losses. Loss Carry-Forward Tax losses can be carried forward for five years after the loss-making year, but only if the business activities, ownership structure and accounting system remain unchanged. It is essential to maintain proper record- keeping and report losses in annual tax returns. Group loss sharing or consolidated tax relief are not available in Vietnam. VAT Deductions Vietnam uses a credit method for VAT, allowing FDIs to deduct input VAT paid on purchases from the output VAT charged on sales. However, certain purchases are ineligible for deduction, such as personal expenses and specific goods. Proper VAT invoices and record- keeping are necessary for claiming input VAT. Tax Declaration and Reporting FDIs must register for tax codes, open bank accounts and declare and pay taxes regularly (monthly, quar - terly and annually). They must also submit financial statements, audits and other documents to the rel - evant authorities. Accounting books and records must be kept in Vietnamese and comply with Vietnamese standards. Administrative Fines for Tax Violations Fines for tax violations vary depending on the severity, ranging from late payment penalties to fraud charges.
Serious violations can even lead to criminal prosecu - tion or licence revocation. 9.4 Tax on Sale or Other Dispositions of FDI Capital Gains Tax for Foreign Direct Investors When FDI companies sell or dispose of their assets in Vietnam, they may be subject to capital gains tax, which is part of the CIT and applies equally to both foreign and domestic investors who hold similar investments. Calculating Capital Gains The capital gains tax amount is typically calculated as the difference between the total sale price and the original purchase price of the assets. Pursuant to the 2025 CIT Law, capital gains derived by foreign investors will be taxed based on a flat tax rate of the sale proceeds. The flat tax rate will be set out in the guiding decree. Tax Rates for Shares in Public Companies For capital gains from selling shares in public compa - nies, the tax treatment differs for foreign and domestic investors: • foreign companies – 0.1% CIT rate on the total sales proceeds, similar to individual investors; and • domestic companies – 20% CIT rate on the calcu - lated capital gains. Please note that this information provides a general overview of capital gains tax for FDI in Vietnam. Spe - cific circumstances and regulations may apply, so it is recommended to consult with a tax professional for accurate advice on each individual situation. 9.5 Anti-Evasion Regimes Vietnam has implemented various anti-avoidance rules to address tax evasion by foreign direct inves - tors (FDIs). Transfer Pricing • Arm’s length principle – transactions between the FDI and its related parties (eg, subsidiaries, parent company) must be at arm’s length, reflecting fair market prices.
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